Today we shall take a look at the EUR/USD currency pair. Although the pair went through yet another bearish short-term trend in early September, for the past five days the exchange rate has been going up once again.
First and foremost, it is crucial to establish that the most recent weakness in the euro, as well as its current strengthening are mostly due to investors’ overall sentiment and expectations about the ECB’s monetary policy, and are not based on the performance of the European economy as reflected in fundamental reports. The euro previously weakened because the ECB’s chief economist spoke about 1.20 as the level the euro should not go above in order to allow inflation to rise at a healthy pace. However, after Thursday’s meeting ECB President Christine Lagarde said something a little different: that the bank will keep a close eye on the rate but be reactive to its movement. She did not say the ECB will take any particular measures to keep the exchange rate of the euro down. As a result, market participants are now curious to see how far they can push the euro and whether it can overcome the 1.20 level. Due to this bullish outlook, we expect the EUR to extend its rally.
The USD, meanwhile, looks poised for a decline. This week the Federal Reserve will follow the ECB and hold its own policy meeting. Considering Jerome Powell’s announcement during the Jackson Hole symposium, investors expect the Federal Reserve to provide more concrete details about its asset purchasing program and its plans for keeping interest rates low for the next few years. This information alone is enough to weaken the dollar, and any additional volatility from the lead-up to the November presidential elections is likely not going to help.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1840, with the price currently trading above it. The daily support levels lie at 1.1831 and 1.1820. The daily resistances are located at 1.1860 and 1.1870, both overcome. The indicators of technical analysis agree in strongly recommending a buy position today.
